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SETC Tax Credit Qualification Explained
SETC Tax Credit: Detailed Guide to Qualification for Self-Employed Individuals
The Self-Employed Tax Credit (SETC), as part of the Families First Coronavirus Response Act (FFCRA), is a notable relief measure designed to assist self-employed individuals affected by the COVID-19 pandemic. By offering monetary assistance in the form of returnable tax benefits, the SETC helps freelancers, gig workers, and sole proprietors reclaim lost earnings due to sickness, quarantine, or caregiving responsibilities.

This thorough walkthrough will help you understand the eligibility standards for the SETC, how to apply for the credit, and how to ensure you optimize your credit claim.


What Exactly is the Self-Employed Tax Credit?
The SETC, launched via the FFCRA and subsequently broadened through additional COVID-19 support laws, was created specifically to address the needs of self-employed individuals who lack access to company-sponsored sick leave or paid family leave. The credit provides reimbursement to freelancers who couldn’t work because of COVID-19-related circumstances, whether from sickness or because they were providing care impacted by the virus.


Who Qualifies for the SETC?
1. Self-Employment Status

To be eligible for the SETC, you must be classified as self-employed, which encompasses:


Independent contractors, independent contractors, and gig workers
Business owners with no employees
Partnership members or members of a Limited Liability Company (LLC) taxed as a sole proprietorship

You must have submitted Schedule SE with your IRS Form 1040 for the 2020 or 2021 tax year, indicating your self-employment income. Even ERC tax credits with part-time independent work can qualify, as long as they comply with the income criteria and can document lost income.

Impact of COVID-19

The SETC is designed for those who couldn’t work because of COVID-19-related issues, and this covers:


Mandatory Isolation or Quarantine: If you were mandated to self-isolate due to a local, state, or federal quarantine order.
Health Issues Due to COVID-19: If you were diagnosed with COVID-19 or showed symptoms that stopped you from working, you are eligible for the credit.
Care for Others: If you were unable to work because you had to take care of someone suffering from COVID-19, or if childcare or schools were not available due to COVID-19, you can claim the family leave portion of the SETC.
Childcare Disruptions: If pandemic-related closure of childcare centers impacted your ability to work, you are able to claim the family leave portion of the credit.


Calculation of the SETC
The SETC is calculated based on your average daily self-employment income and can be claimed in two major areas:

Credit for Sick Leave:


You can request 10 days of missed work due to sickness, quarantine, or self-isolation. The maximum amount you can claim is 100% of your average daily income, limited to $511 per day. For those who were out for the maximum number of 10 days due to illness, the total credit for sick leave could be as high as $5,110 per tax year.

Credit for Family Care:


The family leave credit is intended for those who were unable to work because they had to take care of someone affected by COVID-19 or because of school or daycare closures. In this case, you can claim 67% of your average daily self-employment income, capped at $200 per day. The credit applies to up to 50 days in each year, allowing for a maximum family leave credit of $10,000 for 2020 and $12,000 for 2021.

Total Possible SETC Credit: Across both the sick leave and family leave credits, self-employed individuals can be eligible for up to $32,220 in total relief across the two years.


Required Paperwork for SETC Claims
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